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The issues that can be raised in the given case study is whether Joe Johnson has any potential equitable, common law and statutory liability.
In section 180 of the Corporations Act 2001 the duty of any director or any other officer of a corporation has been mentioned to act with suitable care and due diligence in the matters of the company which can be expectable from any rational individual (Harris, Hargovan & Adams, 2018).
However under the provisions of section 180 (2) of the Act a director or an officer is given an exemption of the business judgment rule if they can provide that their judgment was in good faith without any type of material interest and was for the benefit of the company (Austin & Ramsay, 2015). The directors are further required to prove that they had gathered information about the judgment’s subject to an appropriate extent as decided by the judges in Australian Securities and Investments Commission v Rich (2009).
According to section 181 of the Act any director or any other officer has the duty to be acting for the best interest of the corporation in a good faith (Harris, Hargovan & Adams, 2018).
Any director or officer of a corporation is prohibited from using their position in an improper way for any kind of gain or advantage that can be considered as personal under the provisions of section 182 as decided in the judgment of Parke v Daily News Ltd [1962].
Under the provisions of section 588G a director or any other officer has the duty for the prevention of the insolvent trading by the corporation (Harris, Hargovan & Adams, 2018). The provisions of this section have been discussed in the case Tourprint v Bott [1999].
Under the provisions of section 588GA of the Corporations Act a director is protected by way of a safe harbour if they can prove that they had tried to take necessary steps to resolve the insolvency (Austin & Ramsay, 2015).
Under the common law a director or officer is required to be acting with a degree of care as discussed in the judgment of ASIC v Flugge (No 2) [2017].
Under the provisions of section 184 of the Act if any director or any officer is found to be in breach of their duties under any of these sections they would be charged with criminal offence and penalised under the provisions of section 1317G for pecuniary penalties.
For the breach of a contract under the contract law an individual would be eligible for equitable remedies. These type of remedies are granted to an individual when the loss suffered by them because of breach of contract is more than the ordinary damage that would have been awarded to them as held in Madison Square Garden v. Carnera Corporation. The types of equitable remedies that can be granted to the aggrieved party are: Specific Performance, Contract Rescission and Contract Reformation.
In the given scenario it has been observed that Scintillators Pty Ltd, run by Joe Johnson, is an event management company for the celebrities.
Applying section 180 of the Corporations Act 2001 in the given scenario as the single director of the company Joe Johnson owes the duty to act with suitable care and due diligence in the matters of the company which can be expectable from any rational individual. However by not obtaining a personal guarantee from the clients and a 50% deposit as is the rule of the company he can be said to be in breach of this duty.
Applying the business judgment rule under section 180 (2) as held in the judgment of Australian Securities and Investments Commission v Rich (2009) Joe Johnson can say that he took the decision on the best of his knowledge for the benefit of the company as this contract would give the company enough business in the celebrity business management.
Applying the provisions of section 181 Joe has the duty to be acting in the best interest of the corporation in a good faith. Paying for the contract out of the business fund cannot be considered as the best interest of the company.
Under the common law as discussed in the judgment of ASIC v Flugge (No 2) [2017] Jooe was required to be acting with a degree of care but his wife’s complaint breach of duties owed to the Company is against the common law.
Under Section 588G of the Act Joe is required to be the preventing of the insolvent trading by the corporation. However he was in breach of this duty when even after knowing the company’s condition put company’s money in leasing a office premise in the most expensive office building.
Applying section 184 and section 1317G for the breaches of director’s duties Joe would be liable for criminal and pecuniary penalties.
Under the common law of contract and Madison Square Garden v. Carnera Corporation Joe can claim for equitable remedy against Jerome Best for the non-payment of the contract amount and other damages he had to suffer because of the contract. the best remedy for him would be specific performance to pay all the damages (Smith, 2018).
Thus it can be concluded that Joe Johnson is in breach of both his statutory and common law duty and can claim from Jerome Best the equitable claim for breach of contract.
The primary issue in the given scenario is that a complaint has been received by ASIC from a particular preference shareowner in the organization named OTC Ltd. The complaint has been made to ASIC in relation to the fact that no dividend has been declared by the organization mentioned above, in the past years and the individual who filed the complaint has a guaranteed right to receive ten percent annual dividends. An outline of the situation of the organization mentioned above has been provided by this particular individual to ASIC. An advice has to be provided to ASIC regarding the above issue.
The case of ASIC v Adler [2002] NSWC 171 is considered to be a relevant case in this regard. In this particular case, an individual named Adler was involved with another organization, however, Adler is also a director and a shareowner at the organization named HIH. A loan was taken by Adler from the organization named HIH, in order to purchase shares from the organization in which Adler was involved. After the purchase, the money that remained, was utilized by Adler in order to purchase more shares from the organization named HIH. This was done in order to upsurge the prices and the value of the shares by the organization. In relation to such a situation, Adler was accused by the ASIC (Australian Securities and Investments Commission), for violating his statutory responsibilities regarding the organization named HIH. The individual named William, the founder as well as the CEO of the organization named HIH. The action that was brought against Adler was in relation to the fact that he did not perform his duties towards the organization for a ‘proper purpose’. This is very much evident from the actions of Adler, when Adler himself utilized a loan, which was not secured, to purchase the securities and shares of the organization with which Adler was involved. Further, Adler made a decision to utilize the remaining amount to purchase the shares of the organization named HIH and upsurge the price and value of the shares of the HIH organization.
In the case mentioned above, it was held by the court that four sections in relation to the Corporations Act of the year of 2001 have been violated by Adler. Adler violated section 180 of the aforementioned Act, which provides the responsibility of a particular director to perform actions with due diligence and care. Adler violated section 181 of the aforementioned Act, which provides that a particular director should perform his or her responsibilities with ‘good faith’ and for appropriate and a ‘proper purpose’. Adler violated section 182 that provides that a director must utilize his or her position as a director in an appropriate manner. Adler also violated the section 183 of the Act mentioned above, which states that a director must not utilize any information for private gain and cause detriment to the organization. It was further stated that Fodera and Williams violated their responsibilities in minor extent. The significance of this particular case is that it provides a display of fiduciary violations that includes performing actions, which are in conflict in relation to the interest and welfare of the organization, generating profits that are not disclosed or revealed, and taking decisions that are not for proper motives (Harris, Hargovan & Adams, 2018).
In the given scenario, Brian is an individual who is the non-executive director of the organization named OTC Ltd. Rakesh is the CEO of the organization as well as a director of the organization. An individual named Michael is the finance controller and a director of the organization mentioned above. Dithery Pty Ltd is an organization that is governed by Brian. The funds that were advanced to Dithery Pty Ltd by H2O Pty Ltd was utilized by Dithery to buy shares of OTC Ltd. A trust was also established by Brian in relation to Dithery Pty Ltd. OTC issued shares to H2O and Myne2 Pty Ltd, which was another organization governed by Brian. The trust property that was established by Brian, contained shares of the OTC Ltd. The organization named Dithery Pty Ltd, which is governed by Brian, had the opportunity to sell the shares of the organization named OTC Ltd and earned handsome profits in the succeeding months, however, they did not sell the shares during that period. Ultimately, the shares had to be sold at a huge loss.
In the given scenario, the rules as provided in the case of ASIC v Adler [2002] NSWC 171 shall be applied. In the given scenario, it is very much evident that Brian, being a director of the organization named OTC Ltd, failed to perform his duty properly. It may be stated that Brian violated section 180 of the Corporations Act of the year 2001, which provides the responsibility of a particular director to perform actions with due diligence and care. Brian violated section 181 of the aforementioned Act, which provides that a particular director should perform his or her responsibilities with ‘good faith’ and for appropriate and a ‘proper purpose’. Brian violated section 182 that provides that a director must utilize his or her position as a director in an appropriate manner. Brian also violated the section 183 of the Act mentioned above, which states that a director must not utilize any information for private gain and cause detriment to the organization. hence Brain failed to manage the affairs of the OTC Ltd organization appropriately.
In the conclusion it may be stated that it may be advised to ASIC that Brian failed his responsibilities as a director of the organization named OTC Ltd.
ASIC v Adler [2002] NSWC 171.
ASIC v Flugge (No 2) [2017] VSC 117
Austin, R. P., & Ramsay, I. (2015). Ford, Austin and Ramsay's Principles of Corporations Law. FORD, AUSTIN AND RAMSAY'S PRINCIPLES OF CORPORATIONS LAW, LexisNexis Butterworths, Australia,.
Australian Securities and Investments Commission v Rich (2009) 236 FLR 1
Corporations Act (Cth), 2001
Harris, J., Hargovan, A., & Adams, M. (2018). Australian corporate law. LexisNexis Buttwerworths.
Madison Square Garden Corporation, Ill. v. Carnera, 52 F.2d 47 (2d Cir. 1931)
Parke v Daily News Ltd (1962) Ch 927
Smith, J. (2018). Contract law in Australia [Book Review]. Ethos: Official Publication of the Law Society of the Australian Capital Territory, (248), 60.
Tourprint v Bott [1999] NSWSC 581
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